Solid Energy

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This article is part of the collection of articles on coal projects in New Zealand, which has been developed in conjunction with Coal Action Network Aotearoa (CANA). See CANA's Twitter feed and Facebook page. For information on how to get involved in adding material to CoalSwarm see here.

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Solid Energy New Zealand Limited (Solid Energy) is a New Zealand government-owned coal company and is the country's largest coal producer and exporter. Its core business is the mining of coking coal for export markets; and thermal coal for New Zealand Steel, Huntly power station and a number of domestic industrial customers. The company is currently in major financial difficulties.

Background

State-owned coal mines have a long history in New Zealand. The 1901 Coal Mines Amendment Act allowed the State to open and work coal mines and to set aside Crown land required for coal mining. “State Coal Mines” was established as a government trading enterprise and by 1950 was the largest coal producer in New Zealand. In 1987 the state-owned enterprise Coal Corporation (Coalcorp) was formed from State Coal Mines, inheriting many of its assets and liabilities. Coalcorp was rebranded as Solid Energy in 1996.[1]

Three years later the company was undergoing a period of financial distress and when Don Elder was appointed as Chief Executive in 2000 it was intended that he would wind it up. Instead the situation was turned around and from then until 2012, Solid Energy significantly increased its total revenue and generated reasonable levels of profitability that were used to underwrite a strategy of diversification. [2]

Solid Energy operates a number of South Island coal mines located both on the West Coast (Stockton and Reddale) and in Southland (New Vale). On the North Island the company's largest mines are the Huntly East mine and the nearby Rotowaro Opencast Mine.

During the last decade the company has pursued the development of unconventional coal projects: the Huntly Underground Coal Gasification Pilot Plant; a coal seam gas demonstration plant on the Huntly coalfield; the pilot Mataura Lignite Briquetting Plant in Southland; and studies on a lignite to fertiliser project and a coal to liquid fuels project, also in Southland.[3] In addition, Solid Energy has invested in renewable energy companies, although these made up only a small part of the value of the company.[4]

In 2011 Solid Energy welcomed the National-led Government’s plans to partially privatise state-owned energy companies, stating that the company needed to “raise significant capital to advance our business plans.”[5] However, the company’s optimistic valuation of its assets was greatly at odds with those of independent assessors. [6] Nevertheless, a net profit of $87.2 million was declared in 2011, up from $67.8 million in 2010. [7]

At the beginning of 2012 Solid Energy was planning a major expansion of existing mines and the development of new projects for both domestic and export markets. By mid year, however, it was evident that the company was in serious difficulties and, following a loss of $40.2 M, needed to face up to a major restructuring of its activities. [8]

By early 2013 Solid Energy had shed about a quarter of its work force, mothballed Spring Creek mine and cut back production at Huntly East, and divested itself of its renewable fuels operations. In addition, most board members had been replaced by the end of 2012, followed by the resignation of CEO Don Elder in early February 2013. The company’s debt had increased to $389 million; it was in crisis talks with Treasury and the banks; and further cuts would be necessary. In October 2013 the government persuaded the banks to agree to a rescue package which averted the immediate threat of the company going into receivership.

Since that time, however, the company’s economic woes have only worsened. Coal sales and revenues have continued to decline, there have been further rounds of job cuts, the value of the company’s assets has been cut by hundreds of millions of dollars, and plummeting coal prices show no signs of short term recovery. It is difficult to be sure of the total number of jobs lost as these affect both employees and contractors. Solid Energy’s Annual Reports cite employee numbers as:[9]

June 2010 = 1223
June 2011 = 1426
June 2012 = 1658
June 2013 = 1036
Dec 2013 = 858
Oct 2014 = 721 (Estimated following Stockton job losses announced July 2014)

Solid Energy Companies and Industry Links

Companies[10]
Solid Energy New Zealand Limited
Previous name: Coal Corporation of New Zealand Limited (13 Mar 1997)
Company number: 329045
Incorporation date: 24 Feb 1987

Contact details:
Solid Energy New Zealand Ltd
PO Box 1303, Christchurch 8013
15 Show Place Addington 
Christchurch, 8024 
New Zealand
Tel: (03) 345 6000 
Fax: (03) 345 6016 
info@solidenergy.co.nz
http://www.coalnz.com/

Solid Energy New Zealand Ltd[11]
Directors Appointment Date Background[12]
Philippa Jane DUNPHY (Chair) 10 Dec 2012 Works in NZ financial markets
Richard Andrew COUPE 21 Oct 2013 Professional company director
Keiran Anne HORNE 01 Jan 2014 Chartered accountant
Rabin Sockalingam RABINDRAN 01 Jan 2014 Barrister and legal consultant
David Harold REECE 09 Jun 2014 Australian mining engineer
Neville William SNEDDON 08 Nov 2012 Australian mining engineer


Shareholdings[13]
Name % shares
Simon ENGLISH, Minister of Finance 26.69
Anthony RYALL, Minister for State Owned Enterprises 26.69
BNZ Equity Investments No2 Limited 10.13
The Bank of Tokyo – Mitsubishi UFJ Ltd 10.13
TSB Bank Limited 8.55
Westpac New Zealand Limited 7.03
Commonwealth Bank of Australia 5.70
ANZ Bank New Zealand Limited 5.07



Interim Chief Executive Officer (as of June 2013)
Garry John DIACK

Solid Energy Briquettes Limited
Company number: 4135725
Incorporation date: 28 Nov 2012
Director: Garry John DIACK - Appointed 04 Feb 2013
Total number of shares: 100
Allocation: Solid Energy New Zealand Limited

Solid Energy Renewable Fuels Limited
Company number: 1357087
Incorporation date: 24 Jul 2003
Director: William James LUFF - Appointed 27 JUL 2012
Total number of shares: 7,235,218
Allocation: Solid Energy New Zealand Limited

Solid Energy Land Holdings Limited
Company number: 1915887
Incorporation date: 08 Mar 2007
Director: Garry John DIACK Appointed 04 Feb 2013
Total number of shares: 10,000,100
Allocation: Solid Energy New Zealand Limited

Industry links[14]
Mining
Straterra Natural Resources of New Zealand
GNS Science
Geoscience Society of New Zealand
Infomine Portal
CRL Energy
World Coal Association
Distribution
Lyttleton Port Company
KiwiRail
Training
NZ Motor Industry Training Organisation (MITO)

Permits held by Solid Energy A map of all current mineral and coal prospecting, exploration and mining permits can be downloaded from: http://www.nzpam.govt.nz/cms/coal/permits/current-permits-map. To see the exact location and extent of individual permits: http://data.nzpam.govt.nz/permitwebmaps?commodity=minerals.

Permit types
ML Mining Licence
AML Ancillary Mining Licence
MP Mining Permit
EP Exploration Permit
EPP Exploration Permit (Petroleum)

Number Permit type Location Area Operation Date granted Date expires
(ha)
37024 ML Southland 296 Goodwin 10.01.1983 19.02.2062
37027 ML Waikato 172 Bennydale 01.07.1983 30.06.2023
37042 ML Southland 58 Waimumu 08.03.1985 07.03.2019
3715501 AML Waikato 16 Crooks Farm 01.04.1987 31.03.2027
37155 ML Waikato 2424 Rotowaro 01.04.1987 31.03.2027
3715301 AML Waikato 3 Huntly West 01.04.1987 31.03.2027
37153 ML Waikato 2261 Huntly West 01.04.1987 31.03.2027
3715201 AML Waikato 10 Huntly East 01.04.1987 31.03.2027
3715003 AML West Coast 12 Stockton 01.04.1987 31.03.2027
3715002 AML West Coast 185 Stockton 01.04.1987 31.03.2027
3715901 AML West Coast 49 Strongman 01.04.1987 31.03.2027
3715902 AML West Coast 11 Strongman 01.04.1987 31.03.2027
37160 ML West Coast 654 Island Block 01.04.1987 31.03.2027
37161 ML West Coast 318 Sullivan 01.04.1987 31.03.2027
3716101 AML West Coast 5 Sullivan 01.04.1987 31.03.2027
3716102 AML West Coast 24 Sullivan 01.04.1987 31.03.2027
3716103 AML West Coast 19 Sullivan 01.04.1987 31.03.2027
3716104 AML West Coast 4 Sullivan 01.04.1987 31.03.2027
37157 ML Southland 965 Ohai Opencast 01.04.1987 31.03.2027
37159 ML West Coast 886 Strongman 01.04.1987 31.03.2027
37150 ML West Coast 2310 Stockton 01.04.1987 31.03.2027
37152 ML Waikato 884 Huntly East 01.04.1987 31.03.2027
41126 MP West Coast 117 Reddale Valley 01.04.1987 19.09.2013
41225 MP West Coast 2065 Mt Davy 01.04.1987 12.07.2014
40383 EP Southland 116 Mataura 16.12.1987 15.12.2015
41515+ MP West Coast 2933 Cypress 12.03.1998 11.03.2038
41545 MP West Coast 47 Burkes Creek 22.02.1999 21.02.2019
40558 EP Waikato 453 Huntly North 23.08.2001 22.10.2014
40599* EP West Coast 189 Terrace 28.04.2003 27.04.2013
41723 MP West Coast 98 Charleston 07.10.2003 06.10.2043
40632 EP Waikato 888 Ohinewai 23.12.2003 22.12.2013
40698 EP Waikato 587 Ruawaro 09.11.2004 08.11.2014
40715 EP Southland 60 Croydon 17.01.2005 16.01.2015
40752 EP Taranaki 7438 Taranaki 07.11.2005 06.11.2013
40782 EP Southland 629 South Mataura 07.09.2006 06.09.2016
51428 EP Waikato 2221 Huntly West 25.03.2010 22.03.2015
52363 EP West Coast 359 Caroline Terrace 05.11.2010 04.11.2015
52937 EP West Coast 94 05.11.2010 04.11.2030
52746 EP West Coast 356 Waitahu 17.11.2010 16.11.2015
53258 EP Southland 156 Mataura 16.05.2011 15.05.2016
53457 EP Tasman 8380 Glenroy 23.04.2012 22.04.2017
54004 EP Southland 1079 Mataura 23.04.2012 22.04.2017
53250** EP Waikato 160 Maramarua 15.06.2012 14.06.2017
54568 MP Waikato 6 Kimihia 21.11.2012 20.11.2017

Coal Mining

Recent production levels

Solid Energy’s 2012 Annual Report[15] stated that coal sales had increased by 13% to 4.6 Mt, boosted by product stockpiled due to shipping delays at the Port of Lyttelton following the Canterbury earthquakes. (Actual production in the period was 4.1 Mt.) Coal exports of 2.4 Mt were up 20% on the previous year with domestic coal sales up 6%. Stockton, Rotowaro and New Vale performed well. US dollar prices for hard coking coal, the primary export product, had declined by more than 40% from early 2011 highs. From early July 2012, Chinese steel-making demand had decreased dramatically.

Operating mines

Solid Energy's coal mining interests include, in decreasing order of production:

Stockton mine, a sprawling opencast bituminous coal mine located on a plateau approximately 25 km north east of Westport on the West Coast of the South Island. Coal is sourced from a number of pits on the high altitude plateau and at present production capacity is approx 2 Mt per year. Production decreased between 2006–2010 but by 2012 the mine was once more performing strongly. In Dec 2011 total production had reached 50 Mt and mine extensions were being planned especially at Cypress and Mount William North. During 2012, a disastrous year for Solid Energy, the company’s strategic and structural change proposals included, “Optimising production and minimizing costs at Stockton Mine to generate additional cash.” [16]

The coal is exported to steel mills in India, China, Japan, South Africa and Brazil and is also used for making activated carbon.[17]

Rotowaro Opencast Mine, an opencast sub-bituminous coal mine located approximately 10 km west of the township of Huntly and 100 km south of Auckland. The mine has a production capacity of 1.5–1.9 million tonnes per annum of which approximately three-quarters is supplied to the Huntly Power Station with the remainder to New Zealand Steel's nearby Glenbrook steel mill. In 2011 Solid Energy stated that it expected to continue mining at Rotowaro until 2017.[18]

Huntly East mine, located just north of Huntly township. The underground mine produces approximately 400,000 tonnes of sub-bituminous coal a year, 95% of which is supplied to the Glenbrook steel mill. In 2011 Solid Energy began the construction of a $30 million, 270 m deep ventilation shaft to allow the northern expansion of the mine to the west of the Waikato River. The company stated that the infrastructure upgrade would extend Huntly East Mine’s life by 15 years,[19] but in Aug 2012 announced that it would stop further capital investment and cut back production. About 60 contractors and 63 miners lost their jobs.[20]

New Vale mine, an opencast lignite mine located near Waimumu in Eastern Southland. The mine produces approximately 250,000 tonnes of lignite a year, mainly for Fonterrra’s Edendale milk processing plant, but also for meat processing. [21] Solid Energy bought up large amounts of farmland in the area, intending to massively extend lignite mining in order to provide feedstock for a planned briquetting plant, a lignite to urea project, and a lignite to diesel project. [22] As of July 2013, the only plan that has come to fruition is the construction of a pilot briquetting plant.

Reddale mine, located northeast of Reefton on the West Coast. It opened in 2012 and is scheduled to produce approximately 140,000 tonnes of thermal coal over two to three years for Solid Energy’s industrial customers on the West Coast and upper South Island.[23] Ohai mine, an opencast sub-bituminous mine located near Ohai in Southland. Ohai coal is used in local homes and industries. The mine was closed in June 2009 and a three year rehabilitation project commenced. However, an additional 50,000 tonnes of coal of saleable coal was discovered and mining resumed until mid 2013.[24]

Non-operational mines

Island Block, an opencast bituminous mine near Reefton on the West Coast. The mine was mothballed in 2002.[25]

Pike River Mine is an underground coal mine, originally operated by Pike River Coal, situated northeast of Greymouth on the West Coast. Setbacks delayed the start of coal production and it was only just reaching significant levels when a series of explosions killed 29 miners and left the mine unworkable. Solid Energy bought the Pike River Coal assets from the receivers in July 2012 at a cost of $7.5 M. It applied to change the mining permit in order to investigate ways of making money from Pike River, including the possibility of opencast mining. (The mine is on Conservation land and partly within Paparoa National Park.) The company informed families of the 29 men killed at Pike River that recovery of the bodies would only proceed as part of developing a commercially viable coal mine at the site, but that it would be some years before the company would be able to say if mining would go ahead.[26]

Spring Creek Underground Mine is an underground bituminous coal mine near Dunollie, north of Greymouth on the West Coast of the South Island.[27] The mine was operated through a joint venture with Cargill between 2007–2011 but then Solid Energy resumed full ownership.[28] In 2011 $19M of capital expenditure was put into mine development and the company’s annual report stated that it was planning for a future extension west into the Rapahoe East mining area.[29] The mine became operational for a few months but in Oct 2012 it was announced that Spring Creek was uneconomic and would be placed into a care and maintenance state, resulting in about 220 staff redundancies.[30]

A Solid Energy briefing note (08 Oct 2012) commented on the future prospects of the mine, stating that bringing it out of care and maintenance would require a credible mine plan (noting that the mine never hit its past plans) and a significant uplift in international coal prices. Other West Coast “resource opportunities” would be prioritised but would need to meet the same criteria. The resources in question were Island block near Reefton, Buller resources at and near Stockton, Liverpool/Rajah resource near Greymouth, and Pike River.[31]

Strongman North Mine, an opencast mine inland from Rapahoe on the West Coast was due to close at the end of 2004 although in 2012 Solid Energy described mining (presumably referring to rehabilitation) as being almost complete. [32]

Proposed mines

Solid Energy has continued to explore a number of areas with the aim of developing new coal mines but in light of recent developments future progress must be very uncertain. These proposals include the:

Burkes Creek mine, a thermal coal prospect with inferred coal resources of 18 Mt adjacent to the recently opened Reddale opencast mine, which is northeast of Reefton on the West Coast.[33]

Cypress mine (also known as Cypress extension) on the Stockton plateau. Solid Energy holds an opencast permit for almost 3000 ha in Happy Valley and has faced persistent opposition to its plans to extend the Stockton mine into this area. The company was granted resource consents in 2005 but failed to achieve its target of substantially completing development work by 2012[34] In June 2013 the Biodiversity Defence Society filed declaration proceedings with the Environment Court, arguing that resource consents for the mine had expired because mining hadn’t yet begun.[35]

Kopako coal project at Maramarua in the North Island. Solid Energy stated in 2011 that it had completed a feasibility study on an opencast mine and begun a small mining operation to qualify this coal for New Zealand Steel.[36] (Kopako 1 is an abandoned opencast mine about 40 km north of Huntly.)

Liverpool mine inland from the township of Runanga, near Greymouth, in the South Island. [37] [38] In its 2011 annual report Solid Energy stated that it was aiming to complete a feasibility study for the project, both opencast and underground, planned to produce up to 500,000 tonnes a year of export-grade hard coking coal.[39] Resource consents for preliminary exploration were granted, and resource drilling completed in July 2012. [40]

Mount William North mining Project on the Stockton Plateau. Solid Energy applied for 12 resource consents in order to mine approximately 5 million tones of export coal in a new 243 ha opencast mine, following the development of the Cypress block. The project has been opposed by environmental groups such as the West Coast Environment Network.[41] Following the May 2012 hearing in Westport, however, environmentalists announced that Mount William now stood, “in line as the next mountaintop removal on the Stockton plateau.”[42][43]

Sullivan Mine, an underground mine prospect on the Denniston Plateau of about 400 ha for which Solid Energy holds mining licences. A 40-hole drilling programme was planned for 2012.[44] The Denniston resource is estimated by Solid Energy to contain 6.5 Mt of indicated hard coking coal resource suitable for opencast mining.[45]

Taranaki export coal project, a potential export thermal coal resource in Solid Energy’s Taranaki permit area.[46]

Tihiroa coalfield in the Waikato. The company states that it is considering the coal gasification potential of this field, which contains sub-bituminous coal.[47]

Development Projects

None of these projects have yet proved commercially viable and most have been either reduced in scope or abandoned entirely.

Mataura Lignite Briquetting Plant

In 2007 Solid energy began research into lignite upgrading (briquetting). More than $30 M has been spent on the pilot Mataura Lignite Briquetting Plant in Southland. The plant, designed by Australian company GTL Energy, removes water from lignite obtained from the nearby New Vale opencast mine and turns the product into small pellets, which are easier to transport and to burn.[48] The project has been strongly opposed by environmental groups because of both the increased CO2 emissions it would cause and the destruction of fertile farmland that would result from expanded mining.

After a string of delays, the plant was still not operating successfully by July 2013. Solid Energy aimed to produce 90,000 tonnes of briquettes per year from approximately 150,000 tonnes of lignite. Energy for the plant would be supplied by a lignite-fired boiler using 15,000 tonnes of lignite and generating up to 600 tonnes of coal ash per year. The initial briquette production would be aimed at supplying New Zealand domestic and industrial customers, but the company believed that potential existed for an export-scale plant.[49] By September 2012, however, it appeared increasingly unlikely that this much larger plant would ever get built.

Efforts continued to get the pilot plant up and running, in the face of continuing uncertainty about Solid Energy’s future, but then in May 2013 Chairman Mark Ford stated that, "Solid Energy is no longer in a position to be the lead sponsor of major capital projects." In the same month it was revealed that Solid Energy had spent a total of $35 M on the briquetting plant. This did not include expenditure on the lignite projects of $85.4 M for land acquisition, approx $12 M on exploration drilling and prospecting; and $21.1 M on project feasibility studies. [Ref needed]

On 20 June, after a prolonged period of uncertainty, acting CE Garry Diack announced that Solid Energy and GTL Energy would continue with the operations of the Mataura lignite briquetting plant. Solid Energy would continue to mine and market New Vale lignite but did not see itself as a long-term owner of the briquetting plant. The companies were assessing commercial arrangements and had agreed on a range of options. The plant [not yet in operation] would run for an extended period to showcase it to potential buyers and to allow markets to be assessed. GTL Energy CE Fred Schulte said that continuing to run the plant would underpin the use of the technology globally and was important for a large-scale project that GTL Energy had under development in Indonesia.[50][51]

Opponents of the plant were relieved to hear that a huge expansion of lignite mining was no longer under consideration, but became increasingly concerned by the possibility that the farms acquired by Solid Energy since 2005 would be offered for sale as a block, with a consequently high probability that they would then be acquired by an overseas investor.[52]

Coal to urea plans for Southland

In September 2009 Solid Energy and the agricultural fertiliser supplier, Ravensdown Fertiliser Cooperative, agreed to investigate the construction of a coal-to-fertiliser plant in Southland. In 2010 Solid Energy stated that initial investigations had been focused on a plant producing 1.2 million tonnes of urea – 500,000 tonnes for New Zealand markets and the remainder for export – and it was hoped that the plant would be in operation from 2016/7.[53] In 2011 the company stated that the concept study had been completed. The June 2012 quarterly report stated that the company had “started the feasibility study to refine and confirm the economic and environmental viability and social acceptability of a Southland-based coal to urea development.”[54] In August 2012, however, the Gore District Council was informed that Ravensdown did not have a formal relationship with Solid Energy and would not be involved in further feasibility work with the company. The future of the project looked increasingly shaky and by May 2013 it was clear that it would not go ahead.

Coal to liquid fuel plans

In 2006 Solid Energy began investigating the development of a liquid fuels plant based on the Mataura and Croydon coalfields in eastern Southland, which it claimed contains sufficient "lignite resources to support a world-scale liquid fuels plant for more than 40 years". In March 2007 the company commenced a $4 M drilling programme designed to further define the quantity and quality of the lignite resources, and to gather baseline data for mine design and environmental effects assessment purposes.[55]

In its 2011 annual report, Solid Energy was subdued in its reporting on plans to convert lignite to diesel for the New Zealand market. It noted that "in the year, we assessed a new transport fuels technology under development by Australian company Ignite Energy Resources Pty Ltd, but did not consider that the very early development status of this technology justified proceeding to a full licence agreement at this time.” [56] The “New Developments” sections in the March and April 2012 quarterly reports made no reference to plans for converting lignite to diesel.

Underground Coal Gasification (UCG)

Underground Coal Gasification (UCG) involves setting fire to coal, often in deep, complex seams, and converting it to a mixture of gases known as synthetic gas (syngas), which can be used for electricity generation or for the production of chemical compounds such as urea, methanol or plastics. It is a controversial operation for a number of reasons, including the fact that the process may use fracking (hydraulic fracturing) in which a high pressure mixture of water, sand and chemical agents is pumped into the target formation.

Solid Energy began development of UCG in 2006, and in December 2010 it received resource consents to produce synthetic gas for electricity generation. In its 2011 annual report the company stated that, "The UCG pilot will convert up to 30,000 tonnes of coal into syngas and operate for up to two years … It will provide process, technical and geological information, and verify modelled environmental effects.” [57] The Huntly Underground Coal Gasification Pilot Plant in the Waikato began operations in February 2012 and was commissioned in April of that year.[58] Solid Energy CE, Don Elder, stated that the company "has access to around two billion tonnes of coal in the Huntly Coal Field. Most is too deep to be economic using conventional mining. UCG can potentially allow us to access most of this, which represents 10 times the energy of the Maui gas field."[59] [At that time there were only three productive UCG plants in the world.]

Green Party Energy spokesman Gareth Hughes stated that the project was unacceptable as there was no independent monitoring of the technique; the coal seam fire was just 300 m from the Tauranga Group aquifer; and the Waikato Regional Council was entirely reliant on Solid Energy's water quality data. (Three similar plants have been trialled in Australia, one of which was shut down permanently after leaked carcinogens were detected in nearby groundwater.)[60] [61]

In August 2012 it was announced that the demonstration plant would shut down early and Solid Energy would shift the focus to move more quickly to commercial UCG projects in Huntly and overseas.[62] There was, however, no capital expenditure committed for UCG expansion, and given the massive debt that Solid Energy had taken on by 2013 it would appear unlikely that there will be major activity in this area.[63] When questioned by the Commerce Committee in 2013 Solid Energy stated that it had spent $26.3 million on capital development and production of syngas from the Huntly Underground Coal gasification pilot plant, and $11.2 million relating to resource exploration, and research and development.[Ref needed]

Coal Seam Gas (CSG)

Coal which is too deep to mine or is otherwise inaccessible may be a source of methane (natural gas) which is adsorbed on to the surface of some coal seams. CSG is produced by drilling wells into the deposit and extracting water to depressurise the seam so that the trapped gas (mainly methane) can rise to the surface. The process may involve fracking. Solid Energy has been experimenting with coal seam gas extraction in the Huntly area since 2004.[64] Its 2011 Annual Report stated that the company had received a new Exploration Permit for the Counties region south of Auckland and that it had submitted a further permit application for an area in the King Country.[65]

Solid Energy’s June 2012 quarterly report announced the completion of the $18.5 M Huntly coal seam gas demonstration plant. The trial produced gas, which was burnt on-site to generate electricity sold in the spot market. As part of its restructuring and cost-saving plans in 2013, Solid Energy announced that it was halting the trial and moving the near-term focus of its coal seam gas activity to the significantly larger field at Taranaki because further commercial scale-up at Huntly wasn’t commercially viable.[66] When questioned by the Commerce Committee in March 2013, however, the company simply stated that CSG developments had been suspended. Solid Energy told the Commerce Committee that it had spent $14.8 million on capital development achieving gas production within the Huntly permit and $24.7 million on CSG exploration relating to permits in Huntly Taranaki and South Auckland.[Ref needed]

Carbon Capture and Storage (CCS)

In April 2005 New Zealand Energy & Environment Business Week announced that “A ground-breaking project to capture CO2 emissions from the Huntly Power Station and store them underground is on track to begin within the next 12 months. A consortium of Genesis Energy, Solid Energy, and Geological and Nuclear Sciences is set to begin the trial as soon as it can find the right type of ‘ceramic filter’, which will be attached to the power station’s chimney to extract CO2.” In April 2008, however, a Solid Energy fact sheet stated that, “it may be a low commercial priority to retrofit carbon capture technology to the Huntly power station.” The Huntly project was part of a much larger trans-Tasman initiative called Coal-21 aimed at making carbon capture and geo-sequestration commercially viable.[67]

In Solid Energy’s 2007 Annual Report, Chairman John Palmer and CE Don Elder wrote that "together with our studies into the best uses of our huge lignite resources in Southland and Otago, we are looking at the opportunity for gasification of coal and for the underground storage of CO2.”[68] The company also stated that in October 2006 it had begun an assessment of possible sites for permanent storage of CO2 in several locations in the south of the South Island. Similar work was planned in Taranaki and the Waikato. [69] It was also pursuing a review of historical geological records to identify areas in New Zealand that could have suitable reservoirs for storing CO2.[70]

Solid Energy is a member of the Coal 21 consortium, investigating the Integrated Gasification Combined Cycle (IGCC) power generation system and the prospects of carbon capture and storage. It is also a member of the board of the Australian-based Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC).[71] Despite at least eight years of investigation, however, there is no CCS plant operating or planned in New Zealand and many overseas attempts have been cancelled.

Investment in renewable energy sources

Wood pelleting

In 2003 Solid Energy began a move into the field of renewable energy when it purchased Nature's Flame, a company selling wood pellets for heating.[72] The $34 M Taupo plant, with the capacity to produce up to 40,000 tonnes a year, was opened in 2010. The company also had pellet plants in Rotorua and at Rolleston, near Christchurch. Bulk export shipments were made as part of an initial three-year, $15 million supply agreement with the European utility sector.[73]

In its March 2012 Quarterly Report, however, Solid Energy announced that wood pellet production had decreased by 31% and that Nature’s Flame had ceased production at its Rolleston plant, although production at the Taupo and Rotorua plants would continue.[74] The book value of the company decreased from $37.5 M to $13 M,[75] and as part of the restructuring process in August 2012, Solid Energy decided to convert it to a stand-alone business that could be put on the market.

Biodiesel

In 2007 Solid Energy bought Christchurch-based Canterbury Biodiesel, which was then renamed New Zealand Biodiesel.[76] The company also bought the family-owned, Nelson based solar hot water heating company Sensible Heat, which would be used as a basis for a unit of Solid Energy called Switch.[Ref needed]

As part of its restructuring process in August 2012, Solid Energy planned to sell or close the biodiesel business whose book value had been written down from $17.7 M to $8.7 M.[77][78] In October the company announced that it had completed the sale of the agribusiness division of Biodiesel New Zealand Ltd to Pure Oil New Zealand Ltd, owned by a consortium led by Southern Packers, and was currently considering bids for Biodiesel New Zealand's fuel division.[79] Biodiesel’s refinery converted used cooking oil into biodiesel.

The Christchurch management team of Biodiesel New Zealand bought the business early in 2013, confident that they would be able to run it profitably even without the government’s biodiesel subsidy, which had ended on 30 June 2012, and without the storage tanks that had already been removed and sold off by Solid Energy.[80]

Solid Energy’s road to disaster

1999–2005

When Don Elder became Chief Executive (CE) of Solid Energy in May 2000 he put into motion events that would in the short term lead to greatly increased coal production and cash flow, but would, in the long term bring the company to its knees.[81]

Back in 1999 Solid Energy was facing significant issues resulting from the Asian crisis. Poor performing foreign currency deals had resulted in the Board being replaced, banking facilities being renegotiated and the Crown offering support. The new Board chair initiated a strategic review and restructuring, and in 2000 Don Elder was appointed as CE.[82] Confounding expectations, he turned the company around and coal sales steadily increased from 2.81 Mt in 2000 to 4.46 Mt in 2005.[83]

2005–2008

Sales and profits continued to increase, but in this period dividends (of $20 M) were paid only in 2006.[84] From 2005 Solid Energy had a healthy cash flow every year but this was regularly exceeded by the amounts invested in mining assets, production, new developments and staff costs. The company envisaged that demand and prices would continue to increase, with coking coal perhaps reaching US$400 a tonne by 2020. At the same time, the company obtained petroleum exploration permits, believing that this would be profitable as oil markets became ever tighter. Debt levels started increasing dramatically, from $15 M in 2007 to $295 M in 2012 and then almost $400 M in 2013. Most of the growth in revenue was financed by retained earnings and borrowings as no new shares were issued to the Crown during a 12-year period.

In a 2008 briefing paper for the Minister for State-Owned Enterprises (SOEs), Solid Energy was described as one of the strongest performing SOEs and one of New Zealand’s largest exporters. In its current business plan, Solid Energy forecast profits of $170–$180 million over each of the next three years, with dividends of $100–$130 M per annum. The significant increase over past performance was due to strong international coal prices.[85] The Board made a huge increase in its estimate of Solid Energy’s commercial value; from $475 M in 2007 to $2.954 bn in 2008.[86]

Treasury advised a movement towards a greater private sector involvement in SOEs, while observing that partial listing would not be consistent with, “the Government’s policy to retain 100% ownership of SOEs.” This report also recommended putting pressure on SOEs to increase their gearing (ie, the ratio of debt to equity or capital) by borrowing more from the private sector and paying special dividends to the Crown. These higher debt levels would, “put increased pressure on SOEs to perform, by committing a fixed part of their future cash flow to debt servicing, meaning they must focus more on core business profitability, and on selecting new investment projects carefully.” At the same time, disquiet was expressed about the limited public monitoring of SOEs and the lack of transparency about the process.[87]

2009

Solid Energy had a disappointing result in 2008/09, largely due to a collapse in the international market for coking coal in November 2008, with prices declining from around $US300/tonne to $US100/tonne. Steel mill customers in India and China were delaying or cancelling coal shipments as a result of the global recession. (Later, this fall partially reversed resulting in only a temporary fall in profitability, which was also assisted by the weaker NZ$.) There was concern that reduction in operations were likely to lead to job losses at the Rotowaro mine near Huntly and also at Stockton.[88]

The performance of Solid Energy’s non-coal business was also challenging in 2008/09, contributing to impairments totalling $26.7 million before tax. This included a $13.2 M impairment in the value of the biodiesel business and a $6.3 M write down in the coal seam gas investment.[89]

During 2009 Solid Energy started a borrowing programme to finance its growth objectives. This course of action was encouraged by the government. On 26 May Simon Power, Minister for State Owned Enterprises, told Solid Energy, “I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt. Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment . . . I would also like to . . . ensure that a larger and more consistent share of profits is returned to the Crown as shareholder. In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows.” Solid Energy was also brought to task about its failure to provide comprehensive and timely information about planned capital expenditure, performance targets and a commercial valuation of the company.[90]

2010

This year saw the most grandiose yet of Solid Energy’s plans to build a resources empire. Chairman John Palmer told Prime Minister John Key that New Zealand had to urgently exploit its natural resources or risk the world adapting to the end of non-renewable sources of energy and New Zealand’s resources becoming valueless. He urged the Government to approve Solid Energy’s plans to become a vast natural resources company that would hold permits transferred from other state-owned companies; or to risk missing out on “super profits” which might not last. Solid Energy’s May 2010 business plan projected an economic gain of $20–100 billion if the “New Zealand National Resources Company” was set up as an umbrella company for new and existing mining ventures. Chief Executive Don Elder believed that a price surge for natural resources could lead to New Zealand having one of the world’s highest standards of living.[91] The plan was rejected by the government and Treasury analysts pointed out that, “Solid Energy's non-traditional plans relied on high and rising coal prices to fund its capital development and pay dividends, and a view of coal prices at odds with industry forecasts.”[92]

An October Treasury briefing informed the shareholding Ministers that Solid Energy had made a net profit of $67.8 M for the 2009/10 year but the renewable companies were performing below revenue targets. The Ministers were asked to require Solid Energy to provide greater clarity and disclosure (the company didn’t, for example, provide financial details of the performance attribution of its differing areas of operation.) Ministers should expect to be consulted on significant developments, and receive robust business cases for consideration/approval.[93]

2011

By July 2011 it appeared that previous issues still hadn’t been effectively addressed. A Treasury briefing for a meeting with Solid Energy voiced concerns that Solid Energy had an unduly optimistic approach to forecasting future returns; had not yet provided a Draft Business Plan and Statement of Corporate Intent (SCI); and had not consulted with shareholding Ministers before lodging a bid for the Pike River assets.[94]

In May the Government had announced that, if re-elected, it would apply the mixed ownership model to Solid Energy. A scoping study of Solid Energy was carried out with the intention of readying it for partial privatisation. The results of this study appeared to be diametrically opposed to the company’s expansionary plans as it concluded that an Initial Public Offering (IPO) of the company would require a focus on the core coal-mining business with:
• downsizing of the New Development activities particularly around the large scale
projects associated with the Southland lignite resources
• sale of the renewable businesses (biodiesel and wood pellets)
• increased expenditure on drilling to prove up the level of coal reserves to meet equity market requirements, and
• repayment of Solid Energy’s debt at time of listing to meet the debt free norm for listed coal companies.[Ref needed]

Merchant bank UBS, while assessing the company for partial privatisation, stated that it had been "unable to obtain evidence of internal or external documentation, analysis or review appropriate to support Solid Energy management and board views on commodity price paths." In December, however, Solid Energy was confirmed by Cabinet as being part of the mixed ownership model.[95]

2012

At the beginning of 2012 very little of this information was in the public domain when Coal Action Network Aotearoa (CANA) supporters gathered for a chilly Summer Festival on the Mataura property of Mike Dumbar, one of the few Southland farmers to withstand Solid Energy’s offers to buy up their land for lignite mining. Protest was focused on the briquetting plant, planned by Solid Energy as just the forerunner of its massive lignite projects. The situation appeared to be very much one of David versus Goliath – a small group of activists attempting to oppose a huge Crown-owned Enterprise.

The result for the first half of Solid Energy’s 2011/12 financial year was announced in February. A strong financial performance was reported but the company acknowledged a weakening market and falling prices. Solid Energy formally responded to the Oct 2011 recommendations of the scoping study but Treasury viewed this response as inadequate and commissioned Deutsche Bank to provide a further review. Undeterred, the following month Solid Energy announced its intention to buy the Pike River assets. In May Ministers met with the Chair and Deputy Chair of the Board, and in June the company was moved to intensive monitoring in response to deteriorating financial performance and early warning signs around the balance sheet. It belatedly supplied a draft 2012/13 Business Plan and SCI but these were rejected by the Ministers as an inadequate response to changing market conditions and the deadline for resubmission extended to 31 August.[96] [When the revised plan was submitted it was judged inadequate to address the changed market and the deadline extended to December.]

By mid year it was becoming publicly apparent that the monolith was beginning to crumble. Chairman John Palmer announced that he would step down later in the year although his current term did not conclude until October 2013.[97] [Mark Ford took over as Chair in Sep 2012]

Treasury advice (14 Aug) to Ministers English, Joyce and Ryall acknowledged that the problems faced by Solid Energy were industry-wide because of weakening Chinese and Indian demand, and the Eurozone crisis. The report, nevertheless, went on to state that, “In our view, Solid Energy has made poor use of the funds it generated when coal prices were high. We have had concerns for some time that Solid Energy's strategy was unlikely to pay off to the extent that Solid Energy believed it would (given that, amongst other things, they were effectively taking a very large bet against the market). However, the concern now is that the strategy has put Solid Energy in a position of significant vulnerability given that coal prices are low, and are forecast to remain low for an extended period.”[98]

At the end of August Solid Energy released the official statement of its financial position, which showed a $40.4 M loss. There were $151.7 M of write downs, including Spring Creek Mine whose book value was written down from $137.3 M to $73 M; the South Island bio-diesel business (down from $17.7 M to $8.7 M); and the Nature’s Flame wood pellet business (down from $37.5 M to $13 M). [99] Outgoing chairman, John Palmer, announced that Solid Energy would look to sell land it didn’t need, once it settled on the size and scope of its plans. The company had spent more than $70 M in the mid-2000s buying up farmland in eastern Southland, where it now owned more than 3,000 hectares sitting atop lignite reserves of around 1.35 billion tonnes.[100] CEO Don Elder, however, continued to reaffirm the intentions of Solid Energy to proceed with its plans to exploit these huge deposits.

Solid Energy stated that it was reviewing all operations in response to a market downturn, with revenues expected to fall by $200 M due to the steep fall in demand, especially from Asia, and prices for internationally traded coal. Prices for high-grade coking coal had fallen more than 40% to below $US200 a tonne from above $US300 in 2011. CE Don Elder pointed out that while the company had faced a similar plunge in coal prices during the 2008 global financial crisis, the difference this time was that the New Zealand dollar had stayed persistently strong. Solid Energy believed that it would need to withstand the market conditions for at least 12–24 months.[101]

Finance Minister, Bill English, announced that Solid Energy wasn’t in good shape for investment and a partial sell-down, as the company had signalled substantial issues.[102] On 29 August Solid Energy announced that it would be taking drastic measures in order to, “narrow its business scope and development pipeline down to the best business opportunities by reducing its exposure to underground coal mining to concentrate on lower-cost opencast coal mining — both conventional and using conversion technologies — and underground coal gasification to harness the energy from deep coal seams.” Some of the company’s main proposals were: ceasing further major capital investment at Huntly East and cutting jobs; suspending operations at Spring Creek Mine pending a review; optimising production and minimising costs at Stockton Mine; selling or closing its biodiesel business; converting Nature’s Flame wood pellet business to a stand-alone operation; moving more rapidly to commercial underground coal gasification projects in Huntly while shifting coal seam gas development to Taranaki; reducing capital expenditure by approximately $100 M in the current financial year; and restructuring the organization with the loss of about 140 positions.[103]

Huntly East miners were told at a meeting with Solid Energy that there would be 63 redundancies. About 60 contractors had also lost work at the underground mine. A $30 M upgrade of the ventilation system had been taking place, but that work would now cease.[104] The 200 staff and 50–60 contractors at the West Coast underground mine, Spring Creek, where some $22 M had been spent on mine development, were told that operations were being suspended while the future viability of the mine was being reviewed.[105] Prime Minister John Key expressed the hope that Solid Energy would be able to keep the Spring Creek mine open. He said that the suspension of mining at Spring Creek was an economic issue and was unrelated to the partial sale of Solid Energy. Key said that Solid Energy had always had an “optimistic” view of coal prices.[106]

Solid Energy spokeswoman, Vicki Blyth, explained how a major process of restructuring would result in 65 of the 200 head office positions in Christchurch being lost, including that of senior manager, Barry Bragg.[107]

New Zealand media proffered reasons for Solid Energy’s problems. The Dominion Post pointed out that, in 2004, 64 Solid Energy staff earned more than $100,000 but by 2011 that number had increased to 368. Over the same period Don Elder’s salary had increased from between $570,000–$580,000 to $1.36 M. The editorial suggested that “the current board and Dr Elder have made the mistake of misinterpreting a temporary spike in the price of coking coal as a permanent phenomenon on which they could rely to bankroll expansion into risky new ventures.”[108]

In November, despite its massive existing debt level, Solid Energy borrowed another $25 M when it issued a medium term note to a wholesale investor whom it would later refuse to name. The following year it would also refuse to name the other two investors holding notes. The company has, however, named banks, which hold most of Solid Energy’s debt: ANZ, BNZ, Westpac and Bank of Tokyo-Mitsubishi.

By the end of the year John Fletcher, John McDonald, Simon Masters and Michelle Smith had resigned from the Board. The remaining members appointed PWC as an investigating accountant to assist in providing a clear picture of the company’s financial position. Yet another extension was granted for SCI and Business Plan submission to 28 February as questions around valuation and strategy remained unresolved.[109]

2013

At the beginning of 2013 the situation was looking increasingly dire. The Treasury’s Crown Ownership Monitoring Unit (COMU) released its 2012 Annual Portfolio Report. It did not have a valuation of Solid Energy because the company’s statement of corporate intent had not been finalized, but the previous year's value estimate of $2.8 bn by Solid Energy's board had been higher than an independent valuation of $1.7 bn commissioned by COMU. The report said, “The recent drop in coal prices will have placed further pressure on Solid Energy's 2011 estimate of commercial value … there is every reason to expect Solid Energy's value to have dropped considerably in the year to June 30, 2012.”[110]

On 04 Feb Don Elder, announced his resignation from Solid Energy, after discussions had been underway for some time. He decided to step down immediately as CE but to remain available to work for the company for a period (while still on full salary) to assist with a transition. Garry Diack, previously the company's Group Manager Organisational Development and Performance, would be the interim CE until a new appointment was made.[111]

Yet more writing appeared on the wall when Southland newspaper, The Ensign, revealed that Solid Energy had put several of its rural properties in Eastern Southland up for sale. Solid Energy’s communications manager, Bryn Somerville, was reported as saying that more than 1000 ha of land had been offered for sale, including 750 ha of dairy farmland to the west of Mataura. The company would place conditions on the land titles to ensure that interest in the lignite resource was retained, but did not believe that access would be required for 30–40 years. Mr Somerville stated that Solid Energy would still be able to build a plant or a mine in the district and was currently finalizing the preferred sites.[112] A month previously he had announced that efforts would shortly resume to start commercial production at the lignite briquette plant in Mataura, originally expected to be commissioned in June 2012.[113] A Southland Times editorial, however, commented; “Much as the projects may be still on Solid Energy's agenda, it's an agenda that is right here, right now, looking increasingly like a historical document rather than a still-vibrant plan.”[114]

During February Solid Energy’s trading position continued to deteriorate as Chairman Mark Ford announced that the company was in discussions with banks and Treasury about the debt and equity support required for future business operations. A restructuring and turnaround plan was being prepared by the newly appointed Board.[115] Prime Minister John Key criticised Solid Energy for taking on too much debt, making unsuccessful investments, and not having sufficient reserves to weather a slump in coal prices. He said that the debt had climbed to $389 million when "typically coal companies do not have a lot of debt on their balance sheets.” He indicated that the Government had been unhappy with investments for the last couple of years. When questioned about the $23 M of bonuses allotted at Solid Energy, Key said that it was a matter for the board.[116]

Green Party co-leader Russel Norman pointed out that in 2011 John Key had actively encouraged Solid Energy’s expansion in areas such as lignite conversion. Trevor Mallard, a former Labour Minister for State Owned Enterprises, was referring to Mr Key’s statement that these initiatives could be traced back to previous Labour governments when he said, "Anyone who read the reports could see Solid Energy was having problems and for them to try and blame things that happened five, six, seven or eight years ago is just nonsense."[117]

On 07 March Solid Energy presented its financial report to the Commerce Committee for the year ending 30 June 2012. The company acknowledged that its financial position had further deteriorated and was now a matter of wide public concern. Total revenue was forecast to decrease from $978 million in 2012 to $645 m in the current financial year. A major restructuring plan had seen Spring Creek Mine mothballed, work at Huntly East Mine scaled back, cost-cutting at Stockton, capital expenditure reduced by about $100 m, total job losses of 25% of the workforce, the resignation of CE Don Elder, and an almost total restructuring of the Board.[118]

State owned enterprises minister Tony Ryall blamed the state of Solid Energy on a “perfect storm” of events; a wrong choice of investments along with a worldwide collapse in coal prices. He said that the government could not be blamed because it was the responsibility of the board to manage debts, dividends and investments.[119]

Dozens of Treasury documents released in March and May 2013 under the Official Information Act revealed that Solid Energy had often been reluctant to supply information to the government, including an analysis that would justify its ambitious growth strategy. In March, the company’s responses to some of the Commerce Committee’s questions seemed to follow this same pattern, for example: Q: For each new spending initiative introduced over the last three Budgets (i.e Budget 2009, Budget 2010, and Budget 2011), what evaluation has been undertaken of its effectiveness and what were the findings of that initiative?
A: As a State Owned Enterprise, Solid Energy is not subject to annual Government budgets and therefore we have interpreted this question (and others which relate to “Budgets”) as not applicable to the company.

Some of the questions relating to funding did obtain more substantive answers. For example, Solid Energy spent $162 M on capital works in 2012, compared with $115 M in 2011, $172 M in 2010, $110 M in 2009 and $57 M in 2008.

Other expenditure appeared to be less directly related to the actual business of coal-mining. In 2012 Solid Energy spent $132,000 on Colmar Brunton surveys seeking New Zealanders’ opinions on coal mining and the minerals industry. Almost a million dollars were spent on salaries for communications and public relations staff, plus a total of $170,362 on public relations advice.[Ref needed] Solid Energy had continued to retain the services of Thompson & Clark Investigations Ltd (TCIL) as its security advisor at a cost of $205,053 in 2012. (TCIL was implicated in the use of paid undercover informants prepared to spy on environmental groups such as “Save Happy Valley” who were opposed to Solid Energy’s Cypress Mine plans.)[120]

In 2013 Saunders Unsworth were paid about $48,000 for the provision of expert advice and assistance with regard to handling Commerce Committee Parliamentary protocol and practice. The firm's advice on how to deal with "problematic" Labour MPs and the media was shared, not just with Solid Energy, but with the offices of Treasury and Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall. Saunders Unsworth advised that, “your statements to the committee should be as short as possible. The longer you talk, the more likely it will be that you trigger a range of questions that will not be pleasant.”[121]

Newcomers Garry Diack (acting CE) and Mark Ford (Chairman) often found themselves unable to answer questions posed at the Select Committee hearing. When Don Elder finally appeared before the Committee on 14 March after a somewhat farcical series of events, he acknowledged that in hindsight some past decisions were wrong. He apologized to those who had lost their jobs or otherwise born the brunt of the company’s financial problems. Former chairman John Palmer accepted responsibility for what had happened but didn’t have any regrets about the path and strategy taken by the Board.[122]

On 08 May Chairman Mark Ford announced that Christchurch based jobs would be cut by almost half as part of a strategy that would see the company focusing on its core coal mining capability. The Nature’s Flame wood pellet business would soon go on the market. He also appeared to give a definitive answer to the question of what would happen to Solid Energy’s multitude of projects: "While the underground coal gasification and lignite conversion still have potential, Solid Energy is no longer in a position to be the lead sponsor of major capital projects and we are looking to transition and divest these projects to entities which have the capital, experience and appetite to progress them. The company's financial situation also means that it is unlikely that we will be able to undertake any significant new coal development projects."[123]

Later in that month Prime Minister Key said that the Government needed more time to decide its next move on Solid Energy. On 19 March he had stated that the government would work directly with the bankers to try and find a way of realistically structuring the company. However, that didn’t mean the government would pick up the total bill for Solid Energy’s losses. [All bond and loan facilities were unsecured.] Corporate advisers KordaMentha had completed a report indicating that some parts of the business were in better shape than others. "So in totality it's probably got no equity left and significant debts but that doesn't mean there aren't some parts of it that are potentially genuine businesses,” said Key. “The question is how the Government can take the next step ...There are many options on the table, none of them are terribly palatable. But we're doing our best to try and resolve what is a quite broken company.”[124]

On 12 March the government had engaged the firm of Deloitte to undertake an independent review of the monitoring of Solid Energy during its period of expansion. Treasury had not proposed to release the Deloitte report[125] but on 11 June was obliged to do so under the provisions of the Official Information Act. The Deloitte report concluded that, although there wasn’t a material failure in Treasury’s monitoring processes, the failure of Solid Energy did “raise questions about how these processes are applied and whether Treasury's response was forceful enough or occurred soon enough given that the company provided cause for concern over an extended period." Solid Energy had been extremely reluctant to provide information requested by Treasury and the impression of the company over time was of "an entity that was not as respectful of Treasury's role/responsibility as ministers would expect from an SOE." The report concluded that the removal of Chairman John Palmer and CE Don Elder might have been warranted but that for Treasury to initiate such action "would have required it to effectively form the view that it lacked confidence in a board and executive with a sound track record in a technically complex industry". In response, Finance Minister Bill English said the Government hadn’t acted sooner because of the perception, right up until 2011, that Solid Energy had a highly capable Board. "In hindsight once the coal price had collapsed, you could look back and say we should've moved sooner. But to move sooner we would've had to sack more people sooner."[126]

The Deloitte report also reached a number of conclusions about the underlying reasons for Solid Energy’s collapse. These included the view that:
• its ultimate failure was primarily due to an unforeseen steep and sustained fall in coal prices in mid to late 2012
• Solid Energy had reduced its capacity to manage through a period of distress by increasing its gearing and cost structure;
• the increase in gearing primarily arose from a decision to fund investment activity from debt, despite its strong operating cash flows over most of the period;
• the rationale for investment was underpinned by the Company’s long term view on energy prices which were generally well above consensus market expectations;
• the Board supported the investment strategy, notwithstanding concerns raised by Treasury. Despite repeated requests for independent verification of management’s pricing forecasts, these were never undertaken or provided;
• Treasury’s anxiety with respect to the Company’s strategy was elevated further by the general attitude of Solid Energy to Treasury and the related monitoring processes;
• Concerns identified by Treasury were balanced against the reality that Solid Energy was considered to have a well-regarded CEO, strong Board, and for most of the period operated profitability and produced strong operating cash flows;

On 07 July information came to light – apparently as a result of a clerical error as the information was redacted in all but one of the documents released by Treasury – indicating that $100 M of the funds raised from the partial sale of Mighty River Power was being put aside to help bail out Solid Energy. Finance Minister Bill English stated that this was a short term stand-by facility, which had not yet been activated, and if it were, the Government would get the money back.[127]

Labour MP Clayton Cosgrove accused the government of attempting a cover up but Prime Minister Key appeared to be initially unaware of the budget allocation, saying, "If it's in the Budget documents, it's possible, but it's buried pretty deep in those."[128]

Solid Energy – Environmental Issues

Reporting by Parliamentary Commissioners for the Environment

In 1988 the first Parliamentary Commissioner for the Environment (PCE), Helen Hughes, became concerned about the environmental conditions in the coal mining licences being transferred to the Coal Corporation, a new state-owned enterprise, which was to become Solid Energy NZ Ltd. There were continuing complaints about the environmental impact of coal mining, especially that carried out by Solid Energy, but it was not until 2005 that the second Commissioner Dr Morgan Williams undertook a scoping study on the company’s environmental management systems and performance. In the resulting report he made a commitment to investigate the environmental management of Solid Energy’s mine at Stockton on the West Coast, which was then followed up in 2009 by the third commissioner Dr Jan Wright. In her report Dr Wright drew attention to the problems of the continuation of the old regulatory regime for mining. More than a hundred mining licences granted prior to the 1991 enactment of the Resource Management Act and the Crown Minerals Act continue to apply until they expire; in one case, this is not until 2062. Most of Solid Energy’s mines operate under a licence rather than a permit and there is limited power to vary these licences. (“Old” mining licences may be sold on to private companies.) Issues associated with these licences include the often outdated environmental conditions that are associated with them, and the difficulties and inconsistencies involved with enforcement of these conditions. In addition there is the problem of “orphan” sites, which have been abandoned, leaving remediation costs to be borne by taxpayers and ratepayers. (The new mining permits issued under the 1991 Crown Mineral Act only give the right to mine, ie access to the land. The necessary resource consents, which control the environmental impacts, must then be obtained under the Resource Management Act currently under review.)[129]

In August 2009 the Minister of Energy and Resources stated his interest in having a more permissive approach to mining on conservation land and “unlocking New Zealand’s mineral potential”. This resulted in massive protests, and in July 2010 Energy Minister, Gerry Brownlee, and Conservation Minister, Kate Wilkinson announced that no land would be removed from Schedule 4 of the Crown Minerals Act (which has the highest level of protection) for mining.[130] In her report the PCE had stated that at least 55 of the 111 mining licences granted under the old regime included Department of Conservation land. Although none of these licences were on Schedule 4 land, some of the land might be inadequately protected. [131]]

Stockton Mine

Stockton is a huge opencast bituminous coal mine. The seam from which the coal is extracted has a layer of low ash/low sulfur coal sandwiched between high ash/high sulfur layers. Topsoil and vegetation are removed and placed in specific rehabilitation areas, then the sandstone is blasted away and moved to previously mined areas ready for rehabilitation. While the changed landscape is the most obvious environmental impact, there has also been an extremely significant impact on water quality. The natural geology of the area results in the many streams on the plateau being naturally acidic (pH 3.5–4.5) but acid drainage from the mine and from historic workings reduce the pH still further. Sparse vegetation, shallow soil and heavy rainfall all make it difficult to buffer the pH against these changes. The acid mine drainage also increases the rate at which metals – including iron, aluminium, manganese, nickel and zinc – are leached out of the rocks and into the streams. Together with the problems of excess sediment, all of this results in the potential for severe effects on freshwater ecosystems and their biodiversity.

Solid Energy’s 2004 Annual Report acknowledged that, “In the past, some of our mining activities have fallen well short of environmental best practices.” This was followed by a public commitment to improve its environmental management and performance. As part of its Environmental Management System (EMS) centralised data bases were set up for all of Solid Energy’s mines, and internal reviews undertaken. The Commissioner’s 2009 report commended Solid Energy for its commitment to improving environmental management and its performance at Stockton, including such initiatives as the improvement of water quality and improved information systems. The process of capping exposed rock and treatment with limestone was being trialled in order to try and reduce acid drainage. Water diversion and settling dams were being used as part of the Stockton Water Management Plan (SWaMP). About 140 ha of land were at various stages of remediation; although the Commissioner pointed out that the process did depend on new sources of overburden, soil and vegetation, ie on the continuation of mining. There was also some evidence of an improved monitoring regime by the West Coast Regional Council and Buller District Council. (Apparently it was only in 2005 that the Buller District Council became aware that it had a responsibility for compliance monitoring and reporting.) The Council was criticised by the Commissioner for failing to become significantly involved in the operation of the Stockton Community Consultative Group. [132]

Stockton extension plans

Solid Energy has faced persistent opposition to its proposed extension of its Stockton mine through the development of the Cypress mine in Happy Valley, and its plans to mine Mt Augustus and Mt William.

Mt Augustus
The western boundary of the Stockton Coal Mining Licence is next to Department of Conservation land including areas known as Mt Frederick and Mt Augustus. Solid Energy wished to mine the ridge line along the boundary and had come up with elaborate technical plans to control drainage and rock movement. One of the reasons that environmentalists were opposed to expanded mining was the presence of the endemic native land snail Powelliphanta augusta on the Mt Augustus ridgeline. However, the company gained approval for the collection and relocation of over 6,000 of the snails in order to allow mining to proceed. In its 2007 annual report, Solid Energy complained that "unfortunately, months of delays, due firstly to permitting and in collecting increasing numbers of snails, and lastly, to environmental protesters, forced the cancellation of five export shipments in the year and resulting loss in profit."[133] Almost 4000 snails were released into the wild between 2006–2007, apparently with limited success. In November 2011, 800 of the remaining snails died in captivity as the result of a malfunctioning fridge.[134]

Mount William North
The Mount William North project area lies east of the main Stockton mine and northeast of the proposed Cypress mine. Speaking at the May 2012 hearings held by the West Coast Regional council and the Buller District Council, Lynley Hargreaves of the West Coast Environment Network and the Biodiversity Defence Society pointed out that the overall impact of the cumulative project should be considered, particularly in the light of other mining interests in the area. She also said that coal plateaux ecosystems needed greater protection and Department of Conservation stewardship does not in itself protect land from mining. The proposed biodiversity offset of 50 years of pest control at the Two Rivers site did not meet the requirements for offsetting. The 1998 report on the Protected Natural Area Programme (PNAP) had stated that the Upper Waimangaroa – Mt William Recommended Area for Protection (RAP) had the greatest ecological diversity of any area in the Denniston and Stockton coal plateaux and was in the least modified condition. “It is an outstanding, and fragile natural area (and landscape), and its values should be recognized in all future management.”

Climate change had been excluded from the Mt Williams hearings but Ms Hargreaves attempted unsuccessfully to have the issue of ocean acidification considered. It appeared that at least one of the commissioners had a shaky grasp of the scientific principles involved in climate change; Ms Sharon McGarry claiming that it was caused by a hole in the ozone layer. Notwithstanding the weight of evidence brought by Ms Hargreaves and other submitters, consents were granted and Mt William stood “in line as the next mountaintop removal on the Stockton plateau.”[135]

Happy Valley
The longest running protest has been against Solid Energy’s plans to mine Happy Valley, the local name for an area in the Upper Waimangaroa, 25 km northeast of Westport, described by Save Happy Valley literature as, “home to 30 great spotted kiwi/roa and the rare Powelliphanta patrickensis snail. Eleven other endangered birds and animals inhabit this enclave of diversity. Happy Valley is a colourful mosaic of magnificent red tussock wetlands, low forests of lush mountain beech and dense mats of intricate herbfield plants scattered over striking sandstone rocks and bluffs."

In 2005 an application by Solid Energy for $NZ379,342 in witness costs and legal expenses against two environmental groups was dismissed. Forest & Bird and the Buller Conservation Group had argued before the Environment Court against approval for a new opencast coal mine to be called Cypress. Although the Court approved the mining project, it dismissed the company's costs claim. Forest and Bird's Regional Conservation Officer, Eugenie Sage, said the company "was trying to punish Forest and Bird and BCG for daring to oppose the mine. This was clearly a strategic law suit against public participation,”[136] In August of that year, a group of Save Happy Valley Coalition activists and allies blockaded train tracks leading from Solid Energy's coal mines to the port of Lyttelton. Four Solid Energy trains stood on the tracks for five hours, while police cleared the blockade, which the company later claimed in court had cost them $150,000.[137][138]

In March 2007 Solid Energy lost a bid to suppress the publication by a coalition of environmentalists of a spoof corporate social responsibility report. The company sought an injunction from the High Court to have a two-part report removed from the website of the Save Happy Valley Coalition.[139] Before the court hearing, Solid Energy's chief executive, Don Elder, told a parliamentary committee hearing that the document was defamatory and could lead the community and regulators to make "wrong decisions." A spokeswoman for the coalition, Frances Mountier, said the company's failed bid to suppress the report revealed how they wanted "to keep it quiet about what they are doing to waterways, species and climate."

Another indication of how seriously Solid Energy took these protests was the employment of infiltrators and spies by Thompson and Clark Investigations (TCIL) a private investigation committee hired by Solid Energy. A paid informer Ryan Patterson-Rouse infiltrated Save Happy Valley. In 2007 when these activities were revealed, Prime Minister Helen Clark and SOE Minister Trevor Mallard both made it clear to Solid Energy that these practices were to stop. Yet twelve months later TCIL was still trying to infiltrate environmental organisations.[140] In a bizarre twist, Rob Gilchrist, who claimed to have been approached by TCIL to act as an informant, was outed as a long term police spy on protest groups, and in 2013 was planning to sue police for the psychological damage caused by the period of time he spent working undercover.[141] And in 2013 it was revealed that Solid Energy had continued to retain the services of TCIL as its “security advisor” at a cost of $205,053 in 2012.[Ref needed]

Solid Energy’s 2012 Annual Report stated that the goal of substantially completing development work at the proposed Cypress mine had not been reached, and in June 2013 the Biodiversity Defence Society filed declaration proceedings with the Environment Court, arguing that resource consents for the mine had expired because mining hadn’t yet begun.[142]

Mataura lignite project
Solid Energy’s plans to massively increase the amount of coal being mined at Mataura in Southland met with strong opposition from environmental groups. Unlike the situation on the Buller plateau, mining expansion would not put natural ecosystems at risk but it would result in the destruction of hundreds if not thousands of hectares of some of New Zealand’s most fertile farmland.

In 2010, largely in response to Solid Energy’s lignite mining proposals, Coal Action Network Aotearoa (CANA) became more active on a national level. CANA was formed in 2007 by people with experience in coal activism, such as in the Save Happy Valley Campaign, who were looking for a way to broaden the New Zealand coal and climate campaign. The group’s primary focus was the threat that fossil fuels pose to the climate system; and its principal objective was to phase out coal mining and usage by 2027, initially by opposing new and expanded coal mines. James Hansen’s 2011 speaking tour, sponsored by organisations such as 350.org and Oxfam, helped to galvanise support for the New Zealand anti-coal movement. In Jan 2012 the first CANA Summer Festival was held in Mataura and Coal Action Murihiku (CAM) took up the challenge of opposing expanded lignite mining in Southland.

By 2013 Solid Energy’s economic woes had halted its ambitious expansionary programme but the future of the farmland it had acquired remained uncertain. The company had indicated that the land would be sold in order to reduce some of its $400 M debt and in Feb 2013, 1000 ha of farmland was put on the market and a 170 ha farm was sold. Concerns were expressed that Solid Energy’s remaining Southland land (approx 4000 ha) would be offered for sale as a block, with a consequently high probability that the farms would then be acquired by an overseas investor and pass out of New Zealand control.[143]

Source: Happy Valley Coalition

Other SourceWatch Resources

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